Jetstar’s Australian management and local partner Japan Airlines have been working on the final details of the new budget airline, with a binding agreement to be announced after approval from the three company boards involved, said sources close to the process.

It is understood neither airline will announce an in-principle deal until they have investment sign-off and regulatory approval.

While some industry observers speculated the AirAsia-ANA tie-up could slow Jetstar’s march into the territory, the Qantas unit could still begin flights with the new low-cost carrier before its competitor’s August 2012 launch date, said a source.

“It doesn’t change anything," the source said.

“Jetstar and JAL have been working on this for a long time and AirAsia have responded to what they’ve heard."

One hurdle the new Jetstar carrier will have to clear is getting the support of its parent Qantas board for the start-up capital required. Qantas chief executive
Alan Joyce
is also seeking support to establish another subsidiary airline in Asia, in the form of a premium carrier to be based in Singapore.

Japan’s Nikkei Business Daily reported that the Jetstar-JAL budget airline, which would be branded under the Jetstar name, could be capitalised at between ¥10 billion and ¥20 billion ($117 million and $235 million) compared with the ¥5 billion start-up costs of AirAsia Japan. A Jetstar group spokeswoman declined to comment on the timing of the announcement or a planned launch date, saying only that no agreements had been reached with any parties.

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The rush to bring low-cost competition to Japan is being driven by the lack of penetration of budget carriers in the market.

The low-cost segment accounts for about 5 per cent of airline capacity in Japan, compared with market share of up to 50 per cent in markets such as the US and Europe. Japan is also a key source market for Jetstar as one of the carrier’s largest international markets served from Australia in terms of passenger traffic.

Moving into Japan’s domestic aviation market will mean competing not only with AirAsia Japan but also budget carrier Peach Aviation, which ANA set up earlier this year and which is scheduled to begin flights in March 2012.

AirAsia Japan’s growth could be fuelled by a record-breaking $US18 billion ($16.6 million) order for 200 Airbus aircraft, signed by AirAsia at the Paris Air Show last month.

Aside from Japan, Jetstar chief executive
Bruce Buchanan
has identified similar opportunities to partner with airlines in Macau, Hong Kong, the Philippines and Taiwan to create new low-cost carriers to leverage off the parent brand.

In an earlier interview with The Australian Financial Review, Mr Buchanan said Jetstar’s aim over the next five years was to reach a size that would drive brand recognition and cost savings and secure a regional footprint before emerging competitors had a chance to steal a march.